Home Uncategorized ANALYSIS – Shocked forex traders say currency movement ‘excellent’ and casino-like

ANALYSIS – Shocked forex traders say currency movement ‘excellent’ and casino-like

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Saqib Iqbal Ahmed, Carolina Mandl and Dhara Ranasinghe

NEW YORK/LONDON, September 27 (Reuters)Trading in turbulent currency markets is like being in a casino these days, according to some traders navigating markets that have been battered as central banks and governments try to fix their economies.

Last week, sleep-deprived traders advised clients on extraordinary market movements: the British pound falling to an all-time low, Japanese currency intervention to support a falling yen and the euro sinking below parity with the dollar.

Towering over them all is the mighty US dollar, which is trading at a two-decade high. Some see no end to the terrible volatility.

“It’s really like a casino now,” said John Doyle, vice president of affairs and trading at Monex USA, who said he’s more hands-on with clients and very cautious about risk.

“We’ve had to be extra vigilant about our internal trading policies to ensure we’re not taking any undue risks,” Doyle said. “Discipline was key.”

Deutsche Bank Currency Volatility Index .DBCVIX – the historical volatility index of major G7 currencies jumped to a two-and-a-half-year high of 13.55 on Monday.

The British pound has fallen about 5% against the dollar over the past two sessions, its worst 2-session decline since March 2020, which has led to a comparison with the usually more volatile emerging market currencies.

The yen remains near a 24-year low against the dollar despite Japanese monetary authorities last week intervening in currency markets for the first time since 1998 to prop up the battered currency.

While sterling and the yen have underperformed against the dollar, the dollar’s surge hasn’t spared any major currency. This year, each G10 currency has depreciated by an average of 16% against the dollar.

“It’s definitely been a busy few days and it’s been a bit sleep-deprived,” said Michael Brown, head of marketing information at payments company Caxton in London. “I’ll blame it on the pound rather than my coffee habit, but going to bed at 11:30 and waking up around 3:30 to cable TV (US pound exchange rate) hitting record lows certainly wasn’t very it’s fun.”

Such moves surprised longtime currency traders and investors.

Akshay Kamboj, co-head of investments at Crawford Ventures, a currency-traded hedge fund, said that while he had expected a deep correction in sterling, “it was not expected to be this sharp”.

“Our team is working 24/7 from multiple global locations,” Camboy said, adding that he is not trading sterling because the direction of the pound now depends entirely on how the Bank of England reacts.

VOLATILITY IS HERE TO STAY

Volatility is unlikely to stop.

“It really feels like the basis for more promiscuous moves is still there,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets, who added the driving force will be the strength of the dollar, which depends on how hawkish the US Federal Reserve raises rates.

The US dollar dominated due to a sharp rise in US interest rates, a relatively strong US economy and safe-haven demand as global financial markets have become more turbulent this year.

This has exacerbated problems around the world.

The yen has been weighed down by an ever-widening gap between US and Japanese government debt yields, the euro has been hit by concerns over the energy crisis and its impact on the economy, and the pound has slumped on worries that the new government’s economic plan will continue UK finances to the limit, the dollar rises hastened to use his advantage.

While currency traders are no strangers to volatility, the combination of different risks makes this one stand out.

In contrast to March 2020, the last period of increased volatility, where politicians were united and had largely similar responses to the pandemic, traders now face central banks responding in their own way as they grapple with soaring inflation and currency weakness.

“It used to be a macroeconomic story, but it’s very much a central bank story as they all raced to raise rates,” said Chris Huddleston, CEO of FXD Capital, who has traded currencies and bonds for the past 20 years. years.

Meanwhile, on Monday, Morgan Stanley analysts said that the strengthening of the dollar bodes ill for global financial markets.

“This kind of strength in the US dollar has historically led to some kind of financial/economic crisis… If ever there was a time to look for something to break, this would be it,” the analysts said.

CHART: FX Volatility Indexhttps://tmsnrt.rs/3foBOYF

GRAPHICS: One buck to rule them allhttps://tmsnrt.rs/3dMgI60

(Reporting by Saqib Iqbal Ahmed, Carolina Mandl, John McCrank in New York and Dhara Ranasinghe in London; Writing by Megan Davis; Editing by Aurora Ellis)

((megan.davies@thomsonreuters.com; +1 646 223 6190;))

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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